SL Bidco B.V. Report on the annual accounts for the period January 1, 2017 until December 31, Sliedrecht, April 30th, 2018

Transcription

1 SL Bidco B.V. Report on the annual accounts for the period January 1, 2017 until December 31, 2017 Sliedrecht, April 30th,

2 Index Page Contents Management board s report Financial statements Consolidated financial statements SL Bidco B.V Company only financial statements of SL Bidco B.V Other information

3 Annual accounts SL Bidco B.V Management board s report Financial statements Other information 3

4 SL Bidco B.V. Management Board s Report 2017 The SecureLink Group ( SecureLink ) The Annual Report refers to the consolidated financial statements and the management board s report and the other information of SL Bidco B.V. and its subsidiaries. The term SecureLink or SecureLink Group refers to the group of companies as shown on the following page (SecureLink Group Structure Chart). Unless otherwise stated, all amounts are denominated in EUR. Developments 2017 In November 2016 SecureLink agreed to acquire 100% of the shares of it-cube in Germany. Information about SecureLink can be found on SecureLink employed 647 Full Time Equivalent Employees (FTE) at the end of In 2017 SecureLink Group generated revenues of 240.1M. The current legal structure of SecureLink is shown on the following page. SecureLink is a privately-owned company, with the majority of its share capital held by SL Holdings S.à.r.l., an investment company of Investcorp, based in Luxembourg. The remainder of its share capital is owned by other investors, including management. 4

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6 Mission To have the best know how on cybersecurity infrastructure solutions and managed services To deliver an unrivalled customer service experience Thereby allowing our customers to safely enable their business Geographical Footprint SecureLink is a company active in cyber security in the following countries: Belgium, The Netherlands, Sweden, Denmark, Norway, the UK and, as of January 2017, in Germany. SecureLink is headquartered in Sliedrecht, The Netherlands. Core Product Offering SecureLink offers Cybersecurity Advisory Services, Solutions (sale of Hardware and Software products as well as support for these products), Professional Consulting Services and Managed Security Services (Analysis, Protection, Detection and Response). The company has over 1,600 customers, ranging from large multinational corporations to financial institutions, healthcare and governmental organizations. The company typically targets mid-market to large companies and organizations. SecureLink s Managed Security Services (MSS) are delivered out of 4 Cyber Defence Centers (CDC. In those centers cybersecurity experts monitor the networks and devices of our MSS Customers on a 24/7 basis for cybersecurity threats and take required response actions. 6

7 Internal organization Group Leadership Team The company has a matrix organization. The Group Leadership team consist of the following people, each with their functional responsibilities: Marco Barkmeijer Johan Andersson Marc Goegebuer - CEO, overall leadership, strategy and strategic sales* - COO, MSS, marketing, IT, IT development and integration - CFO, finance and legal * As of the 1 st of March 2018, Mr. Thomas Fetten was appointed as the new CEO. As from that moment, Marco Barkmeijer took on the function of CCO (Chief Commercial officer). The requested information as stated in article 2:166 and 2:276 of the Wet Bestuur en Toezicht (Dutch Law on Management and Supervision) is as follows: The Group Leadership team is currently comprised of 3 male directors (4 including Mr. Thomas Fetten). For vacancies, women and men have equal chances and choices are being made on the basis of competence and fit of personality with the organization. Country Organization The company puts its customers first. This is emphasized by a strong local presence. The company has a decentralized country-oriented sales, marketing and support organization, which is led by country managers. The country managers report to the COO. Functional unit managers report both to country managers and to their functional group counterparts. Strategy Prior to its acquisition by SL Bidco B.V., SecureLink built a track record of strong organic growth in its original home markets, Belgium and The Netherlands. In 2015 a strategic buy and build plan was developed to expand further into Northern Europe in order to build a leading Pan-European cybersecurity expert. 7

8 The company strategy has been developed in an environment where organizations are being confronted with a growing number of cyberattacks which can cause substantial economic and reputational damage. Moreover, as of May 2018, the General Data Protection Regulation ( GDPR ) will take effect in the EU. This regulation requires all companies to protect personal data and to disclose how this data is used and secured. It also obliges organizations to report data breaches within 72 hours. The rise in cyberattacks and the introduction of GDPR has increased the awareness for cybersecurity in all organizations. This environment creates unique opportunities for SecureLink, especially in the advisory and services business. To capitalize on this market opportunity and to become a leading cybersecurity expert, economies of scale and skill will be required. Together with Investcorp, which became SecureLink s majority shareholder through its investment company SL Holding S.à.r.l., SecureLink took major steps in 2016 and 2017 to execute on this strategic plan. it-cube acquisition In November 2016, SecureLink agreed to acquire 100% of the shares of it-cube, a German full-service provider of Cybersecurity. The acquisition of it-cube was completed in January The financial results and balance sheet of it-cube are consolidated into SecureLink s financial statements as of The acquisition of it-cube added revenues of 19.6M in 2017 and added approximately 66 FTE. Organic Growth Plans Next to the targeted acquisition plans in growth markets, SecureLink is targeting continued organic growth in all its markets. SecureLink aims to grow faster than the market. The growth is supported by an expansion of the sales force, as well as the addition of pre-sales and technical consulting staff. Growth is achieved by acquiring new customers and by growing revenue streams from existing customers, mainly by offering an expanded number of solutions to each customer. The company is also driving a transition from project-based business to recurring service revenue models. Revenue growth rates in services outpace the product sales growth. From a technology viewpoint, the company continues to focus on leading-edge solutions, thereby selecting and offering the most advanced products to its customers. SecureLink is also driving a key transition in the Cybersecurity market by offering advanced MSS to the customers. Moreover, SecureLink is developing more advanced consulting capabilities in order to provide strategic cybersecurity consulting services. One of the most profound changes in the IT market is the move to cloud solutions. SecureLink is developing strategies and offering solutions which assist our customers in providing Cybersecurity for their cloud based applications, which are rapidly gaining acceptance. Building economies of scale and skill The fundamental consideration behind SecureLink s strategic plan is that the cybersecurity industry will continue to evolve from a solution (product)-based to a service-based model. In order to provide the best level of service to customers it is essential to have a large pool of experts in the company, who can provide advice and professional services to a varied customer base, dealing with a multitude of infrastructures and cybersecurity challenges. Economies of scale will be essential to remain competitive in a service-oriented business model. It is therefore necessary that the SecureLink group of companies creates deeply integrated core functions. In 2016 one of the main objectives of the integration plan was the creation of a single MSS portfolio, delivered by an integrated service delivery organization, in order to benefit to the maximum from our centralized CDC and NOC capacity. The investments to integrate managed services continued in Legacy operational systems will be replaced by a scalable, resilient and ultra-secure central Service Delivery Platform. The design and a good portion of the development of the new platform was completed in The development continues during Q and a phased roll-out is planned for by the end of the first quarter. Further investments in a central ticketing application and a uniform customer portal have also started in the second half of Data and system migrations are planned for the first quarter of

9 Another strategic initiative is the deployment in China. In 2017, the company has started to build a 5 th Cyber Defense Center in Shanghai to safeguard the business of key European customers in that region. The new CDC has become operational in January Integrating businesses in 2017 has led to financial benefits in terms of more favourable trading terms with our core product vendors. Financial Results (all amounts in EUR) In the course of 2017, the company grew its revenues from 143.1M in 2016 to 240.1M in Revenue growth was realized as a result of the Coresec and the Nebulas acquisitions in 2016 with a first full year consolidation in 2017, the acquisition of it-cube in January 2017, as well as organic growth in SecureLink s original home market in the Benelux. The schedule below provides the regional split of the revenue of 2017: Country Belgium Netherlands Sweden UK Germany Other (Denmark, Norway) Total Revenue 47.3 M 47.5 M 63.4 M 31.5 M 18.3 M 32.1 M M Revenues are composed of product sales 119.6M, maintenance support services and Managed Security Services for 86.2M, professional consulting services 31.6M and other revenues 2.7M. Cost of sales was 187.7M. Cost of goods sold includes 14.9M of amortization on intangible assets. Excluding amortization, cost of goods sold was 172.8M. Cost of goods sold includes the cost of the products sold by SecureLink, as well as the cost (both in-house and procured) for providing the maintenance support, consulting and managed security services. For 2017 the Company reported a Net loss of 36.3M after tax, mainly as a result of the amortization of intangible assets. The company measures its financial performance for management purposes on EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization). For 2017 the company reported EBITDA of 23.0M. Solvency, Cash Flow and Liquidity On December 31 st, 2017, the company s solvency ratio shareholder equity / balance sheet total) is 34.1%, and the current ratio (current assets incl. cash & bank / current liabilities) is 70.2%, with the Shareholders Loans considered as equity. The company generated net cash flow of 3.3M in 2017, together with Fx effect of 0.3M, increasing the cash balance from 20.2M on December 31 st, 2016 to 23.8M on December 31 st, The company had a cash flow from operating activities of 20.9M, including exceptional expenses, related to the M&A activity. The company s payment for acquisition of subsidiaries (net of cash acquired) amounted to 20.7M. The acquisition of it-cube was financed from the company s operating cash flow. Net cash flow for Capital Expenditures was 5.2M. 9

10 Personnel The company s main assets are its people. The company will continue to invest in the growth of its expert salesforce and its consulting teams. These investments require careful timing as the investment in the expert workforce usually takes between 6 and 12 months to start paying back. On December 31 st, 2016, the company employed 551 FTE. On December 31 st, 2017, the number of employees had increased to 647 FTE. The number of employees increased by 65 FTE as a result of the acquisition of it-cube and by 23 FTE as a result of the organic growth in other regions. The integration of acquired companies throughout 2017 obviously created scaling opportunities. By the end of Q3, the Group Leadership Team identified a synergy plan leading to annual cost savings in the range of 2.5M, of which only 0.5 M were realized in The plan was executed throughout Q Research and Development (R&D) The company does engage to a limited extent in R&D activities and/or in the development of marketable IP. The company mainly invests in systems and software to support its internal processes and its service fulfillment with customers. Key risks and uncertainties The principal risks and uncertainties the company is facing are broadly grouped as economic, financial and operational. With respect to risks in general, the company s policy is where possible to mitigate the impact and probability of risks. Taking into account business specific risks, the risk appetite in general is medium. In the paragraphs below the most important risks are addressed including, where applicable, our internal controls. Strategic risk. The company closely monitors the information technology market. One of the developments that may affect the company is the transition to cloud based applications. Adaptation of cloud applications may impact on how cybersecurity is implemented and sourced. This requires SecureLink to permanently revise its product portfolio in order to enable it to offer the appropriate cloud-based solutions. As a provider of technology solutions, SecureLink also permanently monitors the life cycles of the various technology solutions in its portfolio. SecureLink core activities do not include building own products but SecureLink primarily acts as a value-added integrator for the solutions it offers to its customers. Therefore, the technology risk is modest and mitigated by a constant renewal of the product portfolio. The market environment is changing from IT Security to Cyber Security, leading to a transition from a solution (product)-based to a service based business model. This requires SecureLink to pro-actively expand its services portfolio and service delivery capability. We noted that the adaptation of the services model by the customers is taking more time than expected, evidenced by extended sales and onboarding cycles. The slower transition of the market towards a service based model, did not call for a change in strategy. On the contrary, SecureLink continues to invest in its service based business model, not only in equipment or systems, but also in people. SecureLink remains convinced that customers will gradually move to more cloud based IT. Many core applications will however remain directly controlled and managed by our customers. Therefore, SecureLink expects most companies to operate hybrid models in the medium-term future, whereby own infrastructure operates in a combination with cloud based applications. This complex hybrid operating environment will require continued cybersecurity solutions as offered by SecureLink. Operational risk. To execute the strategic plan, the company is dependent on its expert salesforce and expert consultants to market and deliver its solutions and services. To different degrees, there are shortages of cybersecurity experts in the markets SecureLink operates in and the competition to attract talent is high. SecureLink therefore needs to remain an attractive employer, being able to offer competitive remuneration packages as well as exciting job opportunities. 10

11 The company s success will depend on its ability to satisfy customer needs and to provide best in class service. The quality of its service depends on the quality of its people. SecureLink permanently monitors its Net Promotor Score (NPS) and has clear targets and action plans to continue to achieve the highest level of customer satisfaction. Financial risk. A significant portion of the company s cash flow is required to service its debt. Significant investments will also be required in expansion of the workforce, technological support platforms and working capital. Moreover, the transition to services and recurring revenue models may create additional capital requirements as customers expect monthly invoicing and SecureLink may be required to pre-finance the hardand software required to provide the services. It may therefore be necessary in the future to attract additional financing. SecureLink s functional currency is EUR. SecureLink conducts most of its business in local currency (mostly EUR, GBP and SEK). The majority of products and services that are bought in are paid in USD. This exposes SecureLink to currency risk. This risk is mitigated by entering into forward buying contracts for USD from the moment orders are placed and by allowing for currency adjustments in longer term service contracts. The company s external debt (prior to the February 2018 refinancing described in the subsequent event section of this report) is denominated in EUR, in GBP and in SEK to create a natural hedge against currency fluctuations between the functional currency and the operating currencies of the group. The company expects to finance its future investments from its operational cash flow. In case further significant investments will be made in the acquisition of companies, the company may require further debt and equity financing. The interest on most of the debt is floating rate. To mitigate against the risk of interest rate fluctuations, the company has entered into interest rate hedge agreements. More details on mitigation of financial risk are provided in the financial statements (See note 27). Regulatory and Business Liability risk. GDPR is creating a business opportunity for SecureLink. However, the company itself also has to assure compliance with this new regulation, which includes the appointment of a Data Protection Officer (DPO). The increased level of MSS contracts may expose the company to customer claims in case of data breaches. The company mitigates this risk by contractually limiting its liability. Moreover, the company takes out insurance to cover potential professional indemnity and product liability claims. Financial Reporting Risk. During the financial year 2016 and 2017 the company has acquired a number of subsidiaries in various jurisdictions each with their own local accounting requirements. The risk exists that the transition between local GAAP and the group accounting policies results in anomalies. Furthermore the acquisition of the subsidiaries requires a purchase price allocation process in which fair value valuations are performed, which are subject to an estimation process. In order to cope with this risk, the company has invested considerably in its capability to report financial results through the expansion of its finance organization, the implementation of a company-wide reporting and consolidation system and the adoption of unified (NL GAAP) accounting principles and practices. Future Developments SecureLink continues to invest in its growth strategy. The it-cube acquisition was completed in January No further material M&A activity is on the radar, but the company will continue to monitor the market for interesting expansion opportunities. The developments in Asia have become operational in 2018 and are expected to drive financial benefits from the start. Investments in the creation of a centralized service organization, the deployment of a centralized ticketing system and customer portal, and a service delivery platform continue in The majority of the investments have been made in In 2018, the focus shifts towards data and system migration, bug fixing and user training. Except for any further acquisitions, the company intends to finance investments from its operating cash flow. The number of employees will further expand in line with the growth of the professional service business. The company s success depends on the continued growth of the market and its ability to recruit the cyber security experts, as well as the development of its solutions and services portfolio. 11

12 Subsequent events On February 6 th, 2018 the Company issued a 150 M Bond which is listed on the Frankfurt exchange identified with ISIN NO (and will be listed on the Oslo exchange within 12 months after the issuance date of the Bond) to mainly refinance the syndicated bank loans and a shareholder bridge loan. As from the date of listing, the company has become a Public Interest Entity (PIE). The bond has a duration of 5 years maturing on February 5 th, Interest are EURIBOR 3M (with a floor at 0%) + 5.5% and are paid quarterly. Within the same refinancing transaction, the Company entered into a Super Senior Revolving Credit Facility for an amount of 20 M. As of the 1 st of March 2018, Mr. Thomas Fetten was appointed as the new CEO. As from that moment, Marco Barkmeijer took on the function of CCO (Chief Commercial officer). Mr. Thomas Fetten and Mr. Rudy Kroon have been appointed as directors in the Management Board of SL Bidco B.V. on March 9 th, On the 27 th of March 2018, the name of subsidiary it-cube Systems A.G. was changed to Securelink Germany GmbH. Sliedrecht, April 30, 2018 Thomas Fetten Director A Carsten Hagenbucher Director A Rudy Kroon Director B Marco Barkmeijer Permanent Representative of PaPi B.V. Director B 12

13 Consolidated financial statements SL Bidco B.V Consolidated profit and loss account Consolidated balance sheet Consolidated cash flow statement Statement of changes of equity in the legal entity Notes to the consolidated financial statements All amounts in this report are presented in thousands of euro unless stated otherwise. 13

14 Consolidated profit and loss account Notes Period ended 31 December Revenue Cost of sales of goods and providing services... 5 ( ) ( ) Gross profit Selling expenses... (23 753) (12 678) General administrative expenses... 6 (54 027) (34 608) Other income Operating result... (25 337) (24 698) Finance income Finance costs... 8 (12 930) (9 882) Finance cost - net... (12 878) (9 882) Result before income tax and share in result of associated companies (38 215) (34 580) Income tax Share in result of associated companies (170) Result after income taxes... (36 222) (33 434) Attributable to: Owners... (36 266) (33 493) Non-controlling interests

15 Consolidated Balance Sheet After appropriation of result Notes As of 31/12/ /12/2016 ASSETS Non-current assets Intangible assets Property, plant and equipment Financial fixed assets Current assets Inventories Derivative Financial instruments Trade and other receivables Cash TOTAL ASSETS EQUITY AND LIABILITIES Capital and reserves attributable to shareholders of the Parent Share capital (1) Share premium Other reserves (71 988) (33 845) Legal reserves Non-controlling interest TOTAL GROUP EQUITY Provisions Long term loans Current liabilities Trade and other payables Current tax liabilities Short term loans Derivative financial instruments Deferred revenue TOTAL LIABILITIES TOTAL GROUP EQUITY AND LIABILITIES (1) The issued share capital of the entity as per December 31st, 2016 equals EUR 1. 15

16 Consolidated Cash Flow Statement Notes Period ended 31 December According to the indirect method Operating result (25 337) (24 698) Adjustments for depreciation and amortization Changes in operating assets and liabilities... (Increase) in trade debtors... (16 654) (7 181) Decrease in inventories... (591) (Increase) in other operating assets (1 754) Increase in trade creditors (Decrease)/Increase in other operating liabilities (5 077) (Decrease) in provisions from changes in provisions (169) Cash generated from business activities Income tax paid... (2 156) (1 242) Net cash generated from operating activities Cash flows from investing activities Payment for acquisition of subsidiary, net of cash acquired... (20 828) ( ) Payment for intangible assets other than goodwill, customer relations and tradenames... (2 574) (705) Purchase of property, plant & equipment net of proceeds from disposals (2 327) (792) Net cash (used in) investing activities... (25 729) ( ) Cash flows from financing activities Proceeds from issue of share and other equity instruments Interest received Interest paid... (6 087) (3 369) Proceeds/(Repayments) of lease liabilities Net Proceeds of borrowings Other Financial cost paid... (609) Cash flows generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes on cash and cash equivalents (113) 232 Cash and cash equivalents at end of period Rollover investments from previous shareholders are presented in net in the financing and investing cashflows given those transactions do not generate any cash movement. Subsequent conversion of those rollover investments into shares of the company neither generate any cash movements within the financing activities and therefore are presented in net. The total amount of share contribution of 2017 amounts to

17 Statement of Changes of Equity in the legal entity Attributable to the owners of the entity Note Share capital Share premium Legal reserve Other reserve Legal reserve CTA Total Noncontrolling interests Total Equity Balance at 31 December (33 845) (454) Result for the period... (36 266) (36 266) 44 (36 222) Transaction with the owners... Issue of ordinary shares Issue of preferred shares Non-controlling interest Capitalization software (2 069) Depreciation software (192) 192 Cumulative translation adjustments (1 585) (1 585) (1 585) Balance at 31 December (71 988) (2 039)

18 Notes to the Consolidated Financial Statements Corporate Information SL Bidco B.V. (hereinafter the Company ) is incorporated on 9 December 2015 as a Limited Company and registered in The Netherlands with registered number The Company has its registered office in Amsterdam and its operational location is Trapezium 224, Sliedrecht, Netherlands. The Company acquired its interest in the companies listed below constituting the SecureLink Group. There are no individuals who have more than 25% of the beneficial interest in the Company. The parent company is SL Midco B.V., a company based in The Netherlands. The company forms part of a group, headed by SL Holdco B.V. in Amsterdam. The financial information of the company has been recorded in the consolidated financial statements of SL Holdco B.V. in Amsterdam. Copies are available at the Trade Register at the Chamber of Commerce in Amsterdam. The Group s principal business is cybersecurity. The group consolidated financial statements, were approved for issue by the Management Board on April 30 th, A summary of the information required under articles 2:379 and 2:414 of the Netherlands Civil Code is given below. The consolidated companies are: Company Principal activity Registered office Equity interest % at 31 December SecureLink Group N.V. Service Centre Wommelgem, Belgium SecureLink N.V. Operating company Wommelgem, Belgium Zion Security N.V. Operating company Wommelgem, Belgium SL Acquisition B.V. Holding company Sliedrecht, The Netherlands SecureLink Nederland B.V. Operating company Sliedrecht, The Netherlands Securelabs B.V. Operating company Sliedrecht, The Netherlands SL CS Systems A.B. Holding company Malmö, Sweden SecureLink Sweden A.B. (1) Operating company Malmö, Sweden SecureLink Denmark A.S. (1) Operating company Copenhagen, Denmark SecureLink Norway A.S. (1) Operating company Oslo, Norway SL Bidco UK Ltd. (5) Holding company London, United Kingdom SecureLink UK Ltd. (2) Operating company London, United Kingdom Nebulas SG Ltd. (3) Dormant London, United Kingdom

19 Company Principal activity Registered office Equity interest % at 31 December Nebulas XG Ltd. (3) Dormant London, United Kingdom 100 SL German Bidco GmbH. Holding company München, Germany it-cube Systems A.G (4) Operating company München, Germany 100 Notes: (1) Acquired on 30/06/2016 (2) Acquired on 29/07/2016 (3) Liquidated in 2017 (4) Agreed to acquire on 21 November Acquisition date January 1 st (5) For the year ended 31 December 2017, SL Bidco UK Limited (Company House Registration Number: ) was entitled to exemption from audit under section 479A of the Companies Act 2006 of the UK relating to subsidiary companies All entities listed above are fully consolidated for the period under control. The unconsolidated companies are: Company Principal activity Country of incorporation Equity interest % at 31 December Agile SI GmbH. (1) Dormant München, Germany 100 SecureLink Information Technology (Shanghai) Co., Ltd. (2) Operating company Shanghai, China 100 Notes: (1) Agreed to acquire on 21 November Acquisition date January 1 st (2) Incorporated in 2017, start of operational activities in 2018 Both unconsolidated entities are not consolidated (art. 2:407 lid 1 sub a BW) because they have a negligible effect on the financial statements given the fact that Agile SI is a dormant entity and SecureLink Information Technology (Shanghai) was not yet operational during 2017 (start-up phase). Both entities are accounted for using the equity pick-up method. 19

20 Acquisitions through business combination On November 21 st, 2016 the Group agreed to acquire 100% of the shares of it-cube Systems A.G. for 26 M, partially paid in shares of the entity. it-cube Systems A.G. contributed 19.6 M of revenue to the consolidated revenue in The average number of FTE increased with 65. From this business combinations, intangible assets for an amount of 28.2 M have been recognized which is composed of 11 M tradenames, customer contracts and patents and other rights and 17.1 M goodwill. Acquisitions were recognized according to the purchase accounting method as from the date of the acquisition. Merges are accounted using the carry-over accounting method. 2 Significant Accounting Policies Statement of compliance The consolidated financial statements have been prepared in accordance with Title 9, Book 2 of the Netherlands Civil Code. Valuation of assets and liabilities and determination of the result takes place under the historical cost convention, unless presented otherwise. Income and expenses are accounted for on accrual basis. Profit is only included when realized on balance sheet date. Liabilities and any losses originating before the end of the financial year are taken into account if they have become known before preparation of the financial statements. All figures are presented in thousands of euros if not specified. Basis of preparation Financial information relating to the group companies and the other legal entities and companies included in the consolidation is fully included in the consolidated financial statements, eliminating the intercompany relationships and transactions. Third-party shares in equity and results of group companies are disclosed separately in the consolidated financial statements. The company has made a net loss during 2016 and 2017 mainly resulting from amortization of acquisition intangibles. Management is of the opinion that the strong operational result and positive operational cash flow supports the preparation of the annual accounts and accompanying notes based on the going concern principle. Moreover, the refinancing in 2018 as disclosed in note 28 relating to subsequent events has created additional financial flexibility. The results of newly acquired group companies and the other legal entities and companies included in the consolidation are consolidated as from the acquisition date. On that date the assets and liabilities acquired are measured at fair value. If the acquisition price exceeds the fair values of the acquired assets and liabilities this is recognized as goodwill, which is capitalized and amortized over the expected useful life. Goodwill recognized on acquisition of foreign subsidiaries and associates are translated at the exchange rate on the transaction date. 20

21 Financial Instruments Financial instruments are both primary financial instruments (such as receivables and debts), and derivative financial instruments (derivatives). The notes to the specific items of the balance sheet disclose the fair value of the related instrument if this deviates from the carrying amount. If the financial instrument is not recorded in the balance sheet, the information on the fair value is disclosed in note 26 relating to commitments. Primary financial instruments For the principles of primary financial instruments, reference is made to the recognition per balance sheet item of the Principles for the valuation of assets and liabilities. Derivative financial instruments (derivatives) Upon first recognition, financial derivatives are recognized at fair value and then revalued at fair value as at balance sheet date. The profit or loss from the revaluation to fair value as at balance sheet date is recognized directly in the profit and loss account. If, however, financial derivatives are eligible for hedge accounting, and hedge accounting is applied, recognition of this profit or loss depends on the nature of the hedge. Translation of foreign currency Receivables, liabilities and obligations denominated in foreign currency are translated at the exchange rates prevailing as at balance sheet date. Transactions in foreign currency during the financial year are recognized in the financial statements at the exchange rates prevailing at transaction date. The exchange differences resulting from the translation as at balance sheet date, taking into account possible hedge transactions, are recorded in the profit and loss account. Foreign group companies and non-consolidated associated companies outside the Netherlands qualify as carrying on of business operations in a foreign country, with a functional currency different from that of the company. For the translation of the financial statements of these foreign entities the balance sheet items are translated at the exchange rate as at balance sheet date and the profit and loss account items at the exchange rate at transaction date. The exchange rate differences that arise are directly deducted from or added to group equity and recognized in the translation differences reserve. 21

22 Principles of valuation of assets and liabilities Intangible fixed assets Intangible fixed assets are presented at cost less accumulated amortization and, if applicable, less impairments in value. Amortization is charged as a fixed percentage of cost, as specified in more detail in the notes to the balance sheet. The expected useful life and the amortization method are reassessed at the end of each financial year. For the development costs a statutory reserve is formed in the amount of the capitalized amount. Tangible fixed assets Tangible fixed assets are presented at cost less accumulated depreciation and, if applicable, less impairments in value. Depreciation is based on the expected future useful life and calculated as a fixed percentage of cost, taking into account any residual value. Depreciation is provided from the date an asset comes into use. Tangible fixed assets are capitalized if the economic ownership held by the company, and its group companies, is governed by a financial lease agreement. The commitment arising from the financial lease agreement is accounted for as a liability. The interest included in the future lease instalments is charged to the result over the term of the financial lease agreement. Costs for periodical major maintenance are charged to the result at the moment they arise. Financial fixed assets Upon initial recognition the receivables on and loans to associated companies and other receivables are valued at fair value and then valued at amortized cost, which equals the face value, after deduction of any provisions. Deferred tax assets are stated under the financial fixed assets if and to the extent it is probable that the tax claim can be realized in due course. These deferred tax assets are valued at nominal value and are expected to be realized within one year to 3 years. Entities which are not consolidated based on the exemption of Art.2: 407 paragraph 1 sub a of the Dutch Civil Law are accounted for using the equity pick up method. Inventories Inventories of raw materials, consumables and goods for resale are valued at acquisition price or lower net realizable value. This lower net realizable value is determined by individual assessment of the inventories. The valuation of inventories of raw materials and consumables is based on FIFO. The inventories of goods for resale are valued individually, at acquisition price or lower net realizable value. The work in progress and the inventories of finished goods are valued at the lower of cost of manufacture and net realizable value. This lower net realizable value is determined by individual assessment of the inventories. Cost of manufacture includes direct materials used, direct wages and machine costs and other direct costs of manufacture, together with applicable production overhead. Net realizable value is based on estimated selling price, less any future costs to be incurred for completion and disposal. 22

23 Receivables Upon initial recognition the receivables are valued at fair value and then valued at amortized cost. The fair value and amortized cost equal the face value. Provisions deemed necessary for possible bad debt losses are deducted. These provisions are determined by individual assessment of the receivables. Cash The cash is valued at face value. If cash is not freely disposable, then this has been taken into account upon valuation. Third-party share in group equity The share of third parties in the group equity concerns the minority interest of third parties in the shareholders equity of consolidated companies. In the profit and loss account the share of third parties in the result of consolidated companies is deducted from the group result. Provisions The group has various pension plans. All plans are financed through contribution to insurance companies. The foreign pension plan can be compared to how the Dutch pension system has been designed and functions. The pension obligations of both the Dutch and the foreign plans are valued according to the valuation to pension fund approach. This approach accounts for the contribution payable to the pension provider as an expense in the profit and loss accounts. Based on the administration agreement it was assessed that no additional obligation exist on top of the annual contribution due to the service provider. In Belgium the contribution equals 4% of yearly gross salary, in Netherlands 6% and in the Nordics between 15 and 18%. In UK only contributions to the legal pension scheme are made. Defined benefit plans are valued as a best estimate of the benefit obligations, based on a generally accepted actuarial method, in accordance with the applicable Dutch Accounting Standard (DAS). Short term compensation Bonus plans and profit-sharing plans based on operating results of the period. A liability is recorded for bonus plans and profit-sharing plans based on relevant performance plans. The liability is recorded as such under the current liabilities. 23

24 Provision for deferred tax liabilities For amounts of taxation payable in the future, due to differences between the valuation principles in the annual report and the valuation for taxation purposes of the appropriate balance sheet items, a provision has been formed for the aggregate of these differences, multiplied by the current rate of taxation. These provisions are reduced by amounts of taxation recoverable in the future in respect of the carry-forward of unused tax losses, to the extent that it is probable that future tax profits will be available for settlement. The provision for deferred tax liabilities is valued at nominal value. Corporate income tax is charged to the other companies that form part of the fiscal unity for corporate income tax purposes, as if they were independently liable to pay tax. The tax positions are therefore positions with the head of the fiscal unity SL Holdco B.V. Other provisions Unless stated otherwise, the other provisions are valued at the face value of the expenditures that are expected to be necessary for settling the related obligations. Long-term and short-term liabilities Upon initial recognition, the loans and liabilities recorded are stated at fair value and then valued at amortized cost. Principles for the determination of the result Revenue Revenue represents amounts invoiced or accrued as invoice to issue for goods and services supplied during the financial year reported on, net of discounts and value added taxes. Revenues ensuing from the sale of goods are accounted for when all major entitlements to economic benefits as well as all major risks have transferred to the buyer. The cost price of these goods is allocated to the same period. Revenues from services are recognized in proportion to the services rendered, based on the cost incurred in respect of the services performed up to balance sheet date, in proportion to the estimated costs of the aggregate services to be performed. The cost price of these services is allocated to the same period. Other income Other operating income relates to turnover derived from incidental business operations. 24

25 Gains from disposal of tangible fixed assets Gains resulting from the disposal of tangible fixed assets are accounted for when all major entitlements to economic benefits as well as all major risks have transferred to the buyer. Cost of sales of goods and providing services The cost of sales consists of the cost of goods sold and delivered, consisting of direct use of materials, direct wages and other direct and indirect service costs that can be attributed to the service delivery. Taxation Corporate income tax is calculated at the applicable rate on the result for the financial year, taking into account permanent differences between profit calculated according to the financial statements and profit calculated for taxation purposes. Deferred tax assets (if applicable) are recognized only to the extent that realization is probable. The entities SL Holdco BV, SL Midco BV, SL Bidco BV, SecureLink Nederland BV, SL Acquisition BV and Securelabs BV are part of a fiscal unity for corporate income tax and for that reason are jointly and severally liable for the tax liabilities of the Dutch fiscal unity as a whole. As from January 1 st, 2016 the head of the Dutch fiscal unity is SL Holdco BV. Corporate income tax is charged to the other companies that form part of the fiscal unity for corporate income tax purposes, as if they were independently liable to pay tax. The tax positions are therefore positions with the head of the fiscal unity SL Holdco B.V. Principles for preparation of the consolidated cash flow statement The cash flow statement is prepared according to the indirect method. The funds in the cash flow statement consist of cash and cash equivalents. Cash flows in foreign currencies are translated at an estimated average rate. Exchange rate differences concerning finances are shown separately in the cash flow statement. Corporate income taxes, issuance of share capital, interest received and dividends received are presented under the cash flow from operating activities. Interest paid and dividends paid are presented under the cash flow from financing activities. The cost of group companies acquired is presented under the cash flow from investment activities, as far as payment has been made with cash and cash equivalents. The cash and cash equivalents of the group companies acquired are deducted from the purchase cost. Transactions that do not result in exchange of cash and cash equivalents, such as financial lease, are not presented in the cash flow statement. The payments of the lease installments on account of the financial lease contract are presented as redemptions of debts for the redemption component and as paid interest for the interest component. 25

26 3 Segment Reporting The Group s activities are principally related to cybersecurity. As such, the Group has only one business segment as its primary reporting segment. The Group operates in various countries including Belgium, The Netherlands, Sweden, United Kingdom, Germany, Denmark and Norway. Therefore, the geographical segment is the Group s secondary reporting format. Revenue Revenue for the year is allocated based on the country in which the customer is located. There are no inter-segment revenues. Year ended 31 December Belgium The Netherlands Sweden United Kingdom Germany Denmark Others Revenue The revenue comprises of the following revenue categories: Year ended 31 December Products Maintenance and MSS services Consultancy services Other revenue Total revenue Cost of sales of goods and providing services Cost of sales of goods and providing services included an amount of (2016: ) amortization and depreciation charges. 26

27 6 General Administrative Expenses Year ended 31 December Amortization and depreciation... (27 380) (17 764) IT... (3 343) (1 811) Logistics... (312) (362) Administration, Facilities and Finance... (12 809) (9 630) Human Resources... (2 657) (1 067) Management... (7 526) (3 974) Total general administrative expenses... (54 027) (34 608) 7 Personnel Expenses Year ended 31 December Salaries and wages... (43 463) (24 627) Social Security Charges... (9 363) (3 751) Contributions for post employment benefits (2 659) (1 192) Subcontractors... (4 908) (3 313) Training... (862) (341) Recruitment and Other... (3 143) (113) Total personnel expenses... (64 398) (33 337) Personnel expenses exclude the capitalized amount for internally generated software of (2016: 495) Personnel expenses are distributed as follows: Year ended 31 December Cost of sales... (34 061) (15 040) Selling expenses... (18 024) (10 557) General administrative expenses... (12 313) (7 740) Total personnel expenses... (64 398) (33 337) Average number of employees for 2017 and 2016 were as follows: 27

28 Employees Contractors Employees Contractors Belgium The Netherlands Sweden Germany United Kingdom Denmark Norway Total Finance Income and Finance Costs Year ended 31 December Finance income: Interest on bank loans and long-term debt Total finance income Finance costs: Interest on bank loans and long-term debt... (5 758) (5 652) Bank charges... (959) (841) Other... (344) (402) Interest on loans from related parties... (5 869) (2 987) Total finance costs... (12 930) (9 882) 28

29 9 Income Tax Year ended 31 December Continuing operations: Current... (381) (3 404) Deferred income tax Other... (4) Total income tax The weighted average statutory income tax rate was 18.6% for 2016 and 24.87% for This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before tax of the subsidiaries in the respective countries as included in the consolidated financial statements. The changes in the weighted average statutory income tax rate is due to a change in the weighting of profit/(loss) before tax in the various jurisdictions in which the Group operates. The tax on the Group s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows: Year ended 31 December Income before tax from operations... (38 215) ( ) Theoretical rate... 25% 25% Theoretical income tax at Dutch domestic tax rate Effect of foreign taxes... (505) (3 089 ) Tax calculated at domestic tax rates applicable to profits in the respective countries Effect of goodwill... (6 349) (4 277 ) Effect of non-deductible items... (528) (220) Others... (9) 87 Total income tax

30 10 Intangible assets The changes of the cost and accumulated amortizations are shown as follows: Goodwill Patents and other Rights Internally generated software Customer contracts & trade names Total Rate 8,33% 20% 20% 10%-70% Cost At 1 January Additions through business combinations Additions Disposals (71) (71) Transfer to other asset categories (1 072) (26) Foreign exchange (4 448) (36) (858) (5 342) At 31 December Accumulated depreciation & impairments At 1 January 2017 (17 213) (277) (149) (18 886) (36 525) Amortization for the year (24 499) (1 057) (195) (14 934) (40 685) Disposals Impairments Foreign exchange At 31 December 2017 (41 309) (1 334) (341) (33 624) (76 608) Net book amount at 31 December The additions in 2017 represents the goodwill, customer relations, Intellectual property and tradenames recognised at the acquisition of it Cube Systems A.G. - Expected margin on acquired maintenance contracts are recognized within Customer contract (including the difference between the book value of the deferred revenues and the fair value of the corresponding performance obligation) and are amortized over the contract period. The amortization charge for the period 2017 amounts to 883 KEUR. - The key assumptions used for the purchase price allocation process to determine the valuation of the assets and liabilities at the moment of purchase are as follows: - revenue growth - discount rates 30